IEA predicts dramatic growth in US oil output this year
OPEC has voiced its concern of how the possibility of another surge of shale oil could impact production cuts. The International Energy Agency expects the US oil industry to increase dramatically this year as prices increase. The IEA and other analysts are sending a message to OPEC with a warning of a potential output surge, similar to the previous days of the first shale boom.
OPEC and other nations including Russia are due to meet in Oman this weekend. Whilst recently there has been a great success with a three year high in oil prices and reductions in the supply glut, this may be overlooked by the potential risk of the surging shale industry.
The IEA believes that the forecasted growth in the US and significant gains in Canada and Brazil will exceed any potential declines in Mexico and Venezuela. According to the IEA, despite the price responses to the OPEC cuts during last year, many suppliers managed to see a revival with output growth exceeding 700,000 barrels a day.
With the recent surge in Brent crude to above the $70 a barrel mark, the IEA believe non-OPEC supply will expand significantly to approximately 1.7 million this year, which would create the biggest increase since the initial peak of the shale industry boom.
This would result in an unfavourable outcome for OPEC and its supporting nations in 2018. IEA data suggests that the US crude output could overtake levels in Saudi Arabia and even get closer to Russia levels. Experts suggest that another year of production cuts would have little impact on oil inventories which the IEA state are currently around 90 million barrels above the targets of OPEC.
Whilst the US is likely to see gains the situation in Venezuela is likely to worsen after production fell to its lowest level in thirty years within 2017. The IEA has suggested that there is no real evidence to show what OPEC is doing to reduce the supply impact in Venezuela. OPEC and its partnering nations will be meeting in Oman to discuss a strategy for clearing the worldwide oil glut. Minister from countries such as Iraq, Kuwait, and the UAE have stressed that the deals need to continue. The energy minister of Russia emphasised its commitment to the agreements but said the talks could include methods of exiting the supply cuts as the current agreement is due to expire at the end of this year.
OPEC's individual analysis of the oil market isn’t as dramatic as the one highlighted by the IEA. OPEC believes a stronger growth in demands levels and an overall weaker recovery in rival supplies, suggesting a gradual decline in inventories throughout 2018. However, market analysts are swaying towards the forecasts made by the IEA, believing it is a more realistic assessment of the oil market, suggesting that the analysis by OPEC is too low.
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